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Wall Street's Big, Dirty Secret

How they use your retirement money to fund their retirement.

"An out-of-town visitor was being shown the wonders of the New York financial district. When the party arrived at the Battery, one of his guides indicated some handsome ships riding at anchor. He said, 'Look at those bankers' and brokers' yachts.' The naive customer asked, 'Where are the customers' yachts?'" -- Fred Schwed

Over the past few weeks, I have let you in on Wall Street's dirty, big secret: Some "financial consultants" will do anything to get your money. They'll use manipulation. They'll prey upon senior citizens' "need to be wanted," "fear," "desires for security," "guilt," and "greed" (as advised by one marketing guru). They'll dig through your tax returns. They'll put their names and faces on books someone else wrote for them.

When they talk about "retirement planning," they're talking about using your money to fund their retirement. When they see your portfolio of stock, they think of the commissions that'll help them buy more stuff on Overstock(NASDAQ:OSTK).

Whom can you trust?So are you all alone when it comes to good financial advice? Fortunately, no. There really are people who will work to help you grow your net worth and give you peace of mind. We've been trying to do that here at The Motley Fool for more than 10 years, and it's why I launched my Rule Your Retirement newsletter service.

So how can you separate the good advice from the greedy advice? Start with compensation. If an advisor gets paid via commission, either an up-front percentage of your investment or an ongoing fee, you may have entered the den of thieves. Different financial products result in different compensation for the broker, and he may push the product with the highest payout -- for him. The plan that might be best for you may not involve any financial products -- but then the advisor doesn't get paid, so he's tempted to offer a different plan.

Contrast this to fee-only advisors -- planners who get paid for their time, not their products. They have no incentive to sell you a so-so mutual fund from Janus(NYSE:JNS) when a low-cost option from T. Rowe Price(NASDAQ:TROW) would be better. There's no reason for them to recommend a high-fee annuity from MetLife(NYSE:MET) or General Electric's(NYSE:GE) GE Capital. They would recommend you sell some shares of Taser(NASDAQ:TASR) or ImClone(NASDAQ:IMCL) in the interest of prudent diversification -- not so they could generate more trading commissions. Their only incentive is to provide the best financial advice.

How could this difference affect various aspects of your finances? Let's see how likely each type of advisor would be likely to answer various financial questions.

Question

Commission Brokers

Fee-only Advisors

Will they offer investment ideas?

Yes, but only the ones they can sell

Yes

Will they help you get the appropriate level of insurance, and at the lowest cost?

Just insurance they can sell, and it probably won't be cheap

Yes

Will they evaluate your debt and make recommendations for cutting back?

They have no financial incentive to do so

Yes

Will they give tips on the best way to buy individual bonds?

They can only sell bonds through their firms, and they won't be cheap

Yes

Will they address your overall tax situation?

Mostly as it relates to investments

Yes

Will they discuss how the real estate market affects your retirement?

They have no financial incentive to do so

Yes

Will they ask you about an emergency fund?

Maybe

Yes

Will they tell you where to find the lowest-cost mutual funds?

No

Yes

Will they give you advice about your 401(k), 403(b), etc.?

They have no financial incentive to do so

Yes

Will they discuss your pension and other work-related benefits?

They have no financial incentive to do so

Yes

Will they offer guidance on making the most of Social Security and Medicare benefits?

They have no financial incentive to do so

Yes

So which sounds better to you? These are generalizations, of course, but they are based on my experience as a broker with a big Wall Street firm and on what I've learned from the best fee-only advisors. And I've used what I've learned to design my newsletter.

How we can helpRetirement planning isn't just about what's in your IRA. It requires a hard look at the entire picture. It involves lowering taxes and costs, increasing return and benefits, preserving what you have, and knowing where you're going. The best financial advice recognizes this -- and it's how we've designed the Rule Your Retirement service. Check out the contents of the current issue:

The Fool's Rules for Asset Allocation: We review where your money should be, including our model portfolios and investment ideas from other Motley Fool newsletter editors.

What Eggs in Which Baskets: Many investments have their own tax benefits, which are negated once placed in an IRA. Know which investments should be kept out of retirement accounts.

If You Treasure It, Measure It: A "success story" (what else would you call someone who retires in his 40s?) talks about the benefits of tracking your spending and net worth as well as the benefits of moving to a lower-cost real estate market.

The Father of Index Investing: Vanguard founder and index fund innovator John Bogle talks about the stock market, real estate, and retirement.

Let Elvis Improve Your Retirement: We hear from Leigh Keno of Antiques Road Show and Harry Rinker of Collector Inspector on the process of turning collectibles into cash -- and collecting as a profitable hobby.

Inheritance Investing: We answer the question of whether you should invest a large amount of money all at once or gradually.

Think that sounds interesting? Give Rule Your Retirement a 30-day free trial, and see whether it's the kind of financial advice you could use. But don't just look at the issues -- visit the Q&A discussion board, where I am joined by a team of Fools who provide solutions, feedback, clarification, and a second (and third and fourth) opinion on your retirement plan.

Author

As a former financial advisor and English teacher, it was inevitable that Robert Brokamp would one day write about the management of money. His musings on retirement, investments, budgeting, and whoopee cushions can be found on Fool.com and in various other publications, including Better Investing and Newsweek. He was a contributor to The Motley Fool's Money After 40, the co-author of The Motley Fool Personal Finance Workbook, the author of The Motley Fool's Guide to Paying for School, and is the editor of the Motley Fool Rule Your Retirement newsletter service. Robert wishes to one day definitively answer the question, "Why do we make bad decisions with our money when we know better?"
Robert lives peripatetically in Alexandria, Va., with his wife and four children -- but on autumn Sundays he wishes he were in Raymond James Stadium or wherever the Tampa Bay Bucs are battling.